Friday, March 29, 2024
spot_img
spot_img
spot_img
spot_img

MoTI sides with local investors against supplier’s credit

Share

The Ministry of Trade and Industry (MoTI) is denouncing the National Bank of Ethiopia’s (NBE) ‘External Loan and Supplier’s Credit Directives FXD/47/ 2017’ that gives the right to foreign investors to access foreign loans at the cost of local industries. The scheme has also been criticized for its vulnerability to corruption because approval is based on a one to one scheme.
Since last budget year the central bank has amended the directive issued in 2002 to allow FDIs to access foreign currency on the scheme of supplier’s credit in addition to traditional businesses that generated hard currency including exporters. Local manufacturers were neglected even though they may have engaged in similar investments.
The supplier’s credit scheme has given extraordinary rights to foreign investors asking for hard currency to import inputs, machines or spare parts without any precognition imposed by the regulatory body on forex.
This scheme has disappointed local investors because they claim that they are discriminated against by a single directive of NBE. The directive they call ‘apartheid law’ is pushing local investors to leave the business and sell off to foreigners.
The case has been one of the major controversial agendas in the economy since the amendment of the directive, while the central bank has stood its ground.
During the latest meeting held on June 6 at Capital Hotel and Spa between the local manufacturers and officials of MoTI the issue was hotly debated.
Fetlework Gebregziabher, Minister of MoTI, told Capital that the local industries would not be excluded from such kind of scheme without a concrete reason.
“Based on our stand we are not accepting that the supplier’s credit scheme only serves the foreign investors,” she says “the central bank should change its approach and include all actors.”
“If there are conditions that should be changed or arranged it has to be done and include the local manufacturers to access hard currency in similar manner like the FDIs,” Fetlework told Capital.
She said that the suspect on misdemeanor should be the responsibility of NBE. “The central bank is the responsible body to answer on the claim of corruption on the approving process of the supplier’s credit for each requests,” Fetlework added.
Individuals who closely follow the sector but declined to be mentioned due to the sensitivity of the case claimed that the method for approving the supplier’s credit is not clear and vulnerable to corruption. They claimed that they suspect that every approval may have a link of illegality. Sources said that the issue has been addressed by local investors to relevant bodies including Fetlework.
The supplier’s credit approval processes is undertaken on s one to one approach from companies and a representative of NBE, according to experts who know the scheme. Capital tried to talk Yinager Dessie, Governor of NBE about the case via phone but it was unfruitful.
Local investors say they are engaged in the same business as foreign companies, they are supposed to wait for the letter of credit (LC) for their foreign currency demand to import raw material or spare parts.
The amount of LC after very long wait is also unsatisfactory compared with the production capacity of industries that they claimed push the production cost very high and make it uncompetitive compared with similar industries unless they are FDIs.
They claimed that some of the manufacturers have closed their business and others reduced the number of workers due to this uncompetitive condition and lack of inputs for their production.
The sector actors frequently claimed that the NBE directive is issued against the investment proclamation, which was amended in 2012. The investment proclamation no. 769 defined the work ‘investor’ as both domestic and foreign, and article 36 of the same proclamation stated that ‘an investor who acquires an external loan shall have such loan registered with the National Bank of Ethiopia in accordance with the directive of the bank. “Both articles of the investment proclamation did not classify local and foreign investors,” they told the government.
They also stated that the Investment Commission has a stand that the investors local or international ones should be treated the same.
NBE amended the 2002 ‘External Loan and Suppliers’ Credit Directive’ in September 2017. The amended directive added an article that allows foreign investors to access suppliers’ credit.
Those who have the right to use the supplier’s credit scheme will be able to get foreign currency right away when they go to banks, while others including local investors, which are invested in s similar sector as foreigners, are expected to wait the line at the banks to get foreign currency on letter of credit (LC) scheme.
Some of them argue that the government has a policy to encourage FDI that they supported but argue that the law should give equal space to all investments.
Financial experts recently told Capital that the supplier’s credit scheme not only affects local investors but the financial institutions themselves because there is a default risk from their clients.
Bankers say getting the letter of credit up front breaches the first come first serve directive of National Bank of Ethiopia. One of the prominent private bank presidents, who requested anonymity, told Capital that initially the notion of the supplier’s credit indirectly forced the banks which applied without the consultation to settle the payment by the maturity date. “It has forced the banks to face a default risk which affects the country,” he said.
“When the banks secure hard currency they focus on settling the credit rather than approving the LC for its other clients who are not included on the supplier’s credit scheme, which is also another effect on local investors,” bankers said.
Recently the government stated that in the past three quarters of the budget year the government allocated USD 6 billion for the private sector. However local manufacturers argued that from the stated amount the local investors may access only six percent or USD 300 million that the USD 200 million recently released by Commercial Bank of Ethiopia and USD 100 million via private banks for the first time.

Read more